Keynesian Yalie

Honoring a U.S. economist

James Tobin, 63, likes to joke about himself as "a discredited Keynesian," in reference to his economics hero, John Maynard Keynes. Last week the mild-mannered Yale economics professor got the last laugh. In Stockholm, the Royal Swedish Academy of Sciences announced that it was awarding him the 1981 Nobel Prize in Economics. Tobin thus becomes the tenth U.S. citizen to receive the prize since it was first awarded in 1969.*

Selection committee officials made plain that the Nobel deliberations took no notice of recent attacks on Reaganomics by Tobin, a longtime opponent of the monetarist school of Milton Friedman, who received the Nobel Prize in 1976. Rather, they said, the $181,818 prize was awarded for Tobin's career-long academic contributions to economic science. Chief among these is Tobin's belief that money (cash and bank deposits) should not be sharply distinguished by economists from other financial and physical assets. Instead, Tobin views money as only one part of "a continuous spectrum of assets" that can be substituted for each other, even including such tangible items as real estate, sports cars and Chinese ceramics.

To explain the way firms and households manage their assets and debts, Tobin developed the so-called "portfolio selection theory." The concept enables economists to trace the effects of monetary policies, interest rates and inflation on investment decisions. Before Tobin propounded his theory, economists usually assumed that people automatically tried to reap the biggest return for their investment dollars. Tobin showed that investors tend not just to seek a good return but to balance their holdings in accordance with the overall risks involved.

A soft-spoken and shy man, Tobin was appointed to President John F. Kennedy's Council of Economic Advisers in James Tobin 1961. "I'm a sort of ivory tower economist," he warned the President with characteristic modesty. Replied Kennedy: "That's all right. I'm a sort of ivory tower President." When he found out that he had been named the winner of this year's Nobel Prize, Tobin said that he was "surprised, excited and pleased." But his wife Betty took the news in stride. "I've been expecting this for years," said she, "ever since Milton Friedman won the prize."

* The others: Paul Samuelson, Simon Kuznets, Kenneth Arrow, Wassily Leontief, Tjalling Koopmans, Milton Friedman, Herbert Simon, Theodore Schultz, Lawrence Klein.

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